Explain Gupta’s statement in light of the strategic choices in currency management available to the portfolio manager.

The investment policy statement (IPS) for Portfolio A provides the manager with discretionary authority to take directional views on future currency movements. The fund manager believes the foreign currency assets of the portfolio could be fully hedged internally.

However, the manager also believes existing firm personnel lack the expertise to actively manage foreign-currency movements to generate currency alpha.

Kamala Gupta, a currency management consultant, is hired to evaluate the performance of two portfolios. Portfolio A and Portfolio B are managed in the United States and performance is measured in terms of the US dollar (USD). Portfolio A consists of British pound (GBP)
denominated bonds and Portfolio B holds euro (EUR) denominated bonds.
Gupta calculates a 19.5% domestic-currency return for Portfolio A and 0% domesticcurrency return for Portfolio B.